Kelly M. Morrison

On March 23, 2018, the Second Circuit affirmed the dismissal of a putative class action alleging that Abbott Laboratories mislabeled its Similac baby formula as organic, ruling that the plaintiffs’ claims were preempted by the federal Organic Foods Production Act (OFPA).

The plaintiffs in Marentette v. Abbott Labs. Inc. alleged that Abbott violated New York and California consumer protection statutes and common law by labeling as “organic” Similac formula that contained ingredients that are prohibited in organic foods under the OFPA. Because the organic label on the formula was approved under the National Organic Program (NOP) that was established to implement the OFPA, however, the Second Circuit held that the plaintiffs’ claims effectively challenged the OFPA certification process, and were therefore preempted.

The Court’s conclusion rested primarily on the comprehensive nature of the NOP, which was enacted “to establish national standards governing the marketing of . . . organically produced products.” The NOP requires a producer seeking organic certification to disclose all of the practices and procedures it will use in connection with the product, including every substance used during production, following which a certifying agent conducts an on-site inspection. Only after the certifying agent confirms that production of the product complies with OFPA is a producer permitted to label it as organic. The statutory scheme also confers enforcement power on the USDA and its agents, which the Court deemed further evidence that Congress did not intend individual consumers to challenge certification decisions.

Plaintiff Natalia Bruton alleged that the labels of several Gerber baby food products were “misbranded” under the federal Food Drug & Cosmetic Act (“FDCA”) and the FDA regulations adopted pursuant to that Act, violating several federal and California statutes, including California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”), and supporting a claim for unjust enrichment. For example, Plaintiff alleged that the labeling claims on the products at issue, such as “No Added Sugar” and “As Healthy as Fresh,” were impermissible because food manufacturers are allegedly “prohibited from making nutrient content claims with respect to food products intended to be consumed by children under two years old.” Among other things, Plaintiff asserted a novel theory that, even if the labels were not false or misleading to a reasonable consumer, the labeling violations barred the products from being “legally sold or possessed,” rendering them “legally worthless.” According to Plaintiff, the mere sale of a product bearing an improper label – “standing alone without any allegations of deception by Defendant, or review of or reliance on the labels by Plaintiff” – gives rise to a cause of action under California law.

In 2013, a putative class action was filed against Anheuser-Busch alleging that it mislead consumers into believing that Beck’s beer is a German import, when in fact the company had begun brewing it in St. Louis the prior year. Plaintiffs claimed that labeling statements such as “Originated in Germany,” “German Quality,” and “Brewed Under the German Purity Law of 1516,” along with “Beck’s history of being an imported beer from Germany,” caused consumers to believe they were purchasing beer brewed in Germany. The Defendant pointed out that the label disclosed that the beer was a “Product of USA, Brauerei Beck & Co., St. Louis, MO,” and the carton stated “Brauerei Beck & Co., Beck’s Beer, St. Louis, MO,” but the Court declined to dismiss the case on the pleadings. Marty v. Anheuser-Busch Cos., LLC, 43 F. Supp. 3d 1333 (S.D. Fla. 2014). It later settled for over $20 million.

Despite speculation that its powers may be watered down under the incoming administration, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is showing no signs of dialing back its investigative activities at this time. Within the past few weeks, the CFPB instituted federal actions to enforce civil investigative demands (“CIDs”) served on Harbour Portfolio Advisers, LLC (“Harbour”), National Asset Advisors, LLC (“NAA”), National Asset Mortgage LLC (“NAM”), and Zero Parallel, LLC (“Zero Parallel”).

On November 29, the CFPB sued in the Eastern District of Michigan to compel Harbour, NAA, and NAM to respond to CIDs issued as part of an investigation into potential violations of the Truth in Lending Act and other consumer finance laws. The CFPB petition alleges that Harbour “has purchased foreclosed properties in bulk and has resold them to consumers through agreements for deed, also known as land contracts,” with marketing and loan-servicing support from NAA and NAM. Two days later, the Bureau filed a petition to enforce a CID against Zero Parallel in the Central District of California. The petition alleges that Zero Parallel, which allegedly “obtains consumer-loan applications from online advertisers and then sells the loan applications to purchasers that include payday and other small-dollar lenders,” rescinded a prior agreement to produce materials requested by the CFPB as part of an investigation into whether payday loans violated the Consumer Financial Protection Act of 2010.

The plaintiff in Demmler v. ACH Food Companies, Inc. alleged that Weber BBQ sauces containing caramel color were falsely labeled as “All Natural.” Prior to initiating the lawsuit, and pursuant to state statute, plaintiff’s counsel sent a demand letter asserting that the “All Natural” label violated Massachusetts law and demanding compensation to the plaintiff and the class. ACH responded by sending a $75 check, characterized as “the extent of [ACH’s] willingness to compromise in the circumstances.” The plaintiff rejected the check on the ground that it offered no relief to the class, and filed a complaint. ACH subsequently tendered a second $75 check, which the plaintiff again rejected, and moved to dismiss the lawsuit for lack of standing.

Notwithstanding the plaintiff’s express rejection of the checks, the court held that the defendant’s offer extinguished the dispute, leaving the parties without a live “case or controversy” as mandated by Article III. In distinguishing the Supreme Court’s opinion in Campbell-Ewald, the court emphasized that “the $75 check did not represent a settlement offer—ACH sent the check unprompted, and did not impose any preconditions on Demmler for doing so,” asserting that “[t]his distinction makes all the difference.” Although it noted that the first check was issued before the complaint was filed (and therefore arguably implicated the plaintiff’s standing), while the second check was issued during the pendency of the lawsuit (and therefore arguably implicated the mootness doctrine), the court declined to distinguish between the two offers.

This latest opinion confirms that the debate over whether an individual settlement offer can moot a class action is far from over.

The Ninth Circuit’s decision in Mazza v. American Honda appeared to be an instant game changer, providing defendants across the Circuit with an easy way to oppose certification of nationwide classes seeking remedies under California consumer protection laws. The plaintiffs in Mazza alleged that Honda had misrepresented the safety features of its Acura vehicles in brochures, television commercials, and print advertisements. On appeal, the Ninth Circuit held that the district court had “erroneously concluded that California law could be applied to the entire nationwide class.” And “[b]ecause the law of multiple jurisdictions” would apply to “any nationwide class of purchasers,” the Ninth Circuit held that “variances in state law [would] overwhelm common issues and preclude predominance for a single nationwide class.”